'The biggest risk for the Australian economy': Consumer worries for Frydenberg

Talking points

Retail spending was weak in the three months to July, below market expectations of a 0.3 per cent rise.

Household goods, clothing and department store sales all fell between 1 and 2 per cent.

Cafes and restaurants were one of the few sectors to escape the drop, up by just 0.6 per cent.

Treasurer Josh Frydenberg will be relying on record company profits to drive tax revenues as he faces his first set of national accounts a week after taking responsibility for the Australian economy.

Falling house prices, a sluggish retail sector, high levels of household debt, low levels of consumption and torpid wage growth will all hamper the government’s goal of bringing the budget back to surplus as Mr Frydenberg considers a mini-budget before the next election.

New figures released by the Australian Bureau of Statistics on Monday show company profits boomed by 2 per cent in the three months to June, up 11.4 per cent on the year to $335.4 billion.

At the same time, wages and salaries - a measure based on total employment growth - rose by 4.5 per cent over the year, pointing to a strong revenue gain from the number of people being employed rather than any meaningful rise in pay packets, which continue to struggle to keep up with inflation.

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Thinner wallets were also evident in another round of weak retail spending. It went nowhere in the three months to July, below market expectations of a 0.3 per cent rise.

Household goods, clothing and department store sales all fell by 1-2 per cent. Cafes and restaurants were one of the few sectors to escape the drop, up by just 0.6 per cent.

Furniture sales are following house prices down, dropping by 0.7 per cent, with fewer people moving between properties and picking up new chairs, tables and couches along the way.

Analysts have tipped a sliding housing market won't help consumer spending after prices slipped for the 11th straight month in August, led by Sydney, down 5.6 per cent for the year and Melbourne, which dropped by 1.7 per cent according to Core Logic figures released on Monday.

"We suspect an extra indirect hit from the negative wealth effect associated with falling house prices will contribute to consumption growth easing before long," said Paul Dales from Capital Economics.

That sentiment was echoed by Commonwealth Bank economist Belinda Allen.

"The consumer remains the biggest risk for the Australian economy," she said.

Mr Frydenberg will face one of his first public tests as Treasurer when he releases the national accounts on Wednesday.

The market is predicting a slight fall in gross domestic product, down to 2.8 per cent for the year and 0.7 per cent for the quarter.

The economic go-slow means the Reserve Bank is unlikely to raise interest rates anytime soon, which combined with political turmoil means the central bank is increasingly seeing itself as a source of much needed stability.

The board will meet on Tuesday and is expected to keep rates on hold at the record low of 1.5 per cent despite Westpac going it alone with an out-of-cycle rate rise for its customers last week, drawing criticism from Mr Frydenberg and Prime Minister Scott Morrison.

The banks are expected to come under even greater scrutiny under Mr Frydenberg after he took personal control of the Australian Securities and Investments Commission on Monday.

The regulator, which was traditionally the remit of the Assistant Treasurer, is set to be part of a major policy overhaul in the wake of the banking royal commission

In an unprecedented breadth of portfolio responsibilities, Mr Frydenberg will handle budget, economic and fiscal policy, taxation, superannuation, foreign investment, engagement with the G20, APEC, the International Monetary Fund and the World Bank, along with regulators ASIC, the Australian Prudential Regulation Authority and the Australian Competition and Consumer Commission.

Mr Frydenberg's deputy, Stuart Robert - who replaces Kelly O'Dwyer - will have some responsibility for financial services and the day to day management of superannuation, competition and consumer policy, the Australian Bureau of Statistics, FinTech and crowd source equity funding.